European blue-chip shares eked out fresh gains yesterday as French pharmaceuticals duo Aventis and Sanofi-Synthelabo whetted investor appetite for the heavily weighted sector.
Other climbers included Givaudan after the Swiss scents and tastes group said it would beat 2002 results this year and buy up to 10 per cent of its capital, and Dutch group Buhrmann after it agreed to sell its paper merchant arm.
However, the prospect of a flat opening in Wall Street took some wind out of the sails, with investors in the banking sector likely to stay put until they see sector giant Morgan Stanley's quarterly earnings later in the day. By 1153 GMT, the broader pan-European FTSE Eurotop 300 stood 0.7 per cent ahead at 883, bringing to 30 per cent its rally since a mid-March's six-year trough and 12 percent gains for the past three weeks alone.
The narrower DJ Euro Stoxx 50 index was up 0.6 percent at 2,522 points, as the CAC-40 index added 0.4 per cent at 3,214 points in Paris and Frankfurt's DAX rose 0.4 percent at 3,299.
"For the rally to be sustained we need to see hard evidence that the rebound in economic growth and corporate profits we are discounting," said John Hatherly, head of global analysis at M&G Asset Management.
Some strategists warned that if signs of recovery failed to materialise, then sentiment towards equities could turn sour again and lead to sharp corrections.
In another sign that stock gains may be short-lived, Dresdner Kleinwort Wasserstein said yesterday it was cutting bonds to neutral from heavy overweight in its recommended global asset allocation in favour of cash, retaining an underweight position on equities.
French drugmakers Sanofi-Synthelabo and Aventis were among the session's stars, with Sanofi adding 2.5 per cent after it received approval from US drug authorities to lengthen its Arixtra blood-thinning treatment to prevent post-operative deep-vein thrombosis.
Sanofi was also buoyed by Lehman Brothers who raised its price target on the stock to €74 from 67, or some 28 per cent above its current share price.
Domestic peer Aventis gained 3.3 per cent at €51.65 while Britain's Amersham was worth 3.4 per cent more at 498 pence after Lehman upped its targets to €61 from 55 and to 470 pence from 430 respectively.
The pan-European DJ Stoxx health index was up 1.7 per cent by 1140 GMT.
On the downside, shares in Bouygues and Abbey National fell 6.3 per cent and 2.3 per cent respectively after weaker-than-expected earnings from the French conglomerate and disappointing personal investment sales from the British bank.
Debt-laden media group Vivendi Universal also shaved two percent after leading investment bank UBS downgraded its recommendation on the stock to "reduce-2" from "neutral-2".
A dearth of U.S. data left investors to focus on a euro zone report confirming May inflation had subsided to 1.9 percent from 2.1 percent in April. Inflation came below the European Central Bank's two-percent target for the first time in a year and added to expectations for further monetary easing in the region.